<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 28, 1996
---------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------ -----------
Commission file number 1-11665
JEFFERIES GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-2848406
- ----------------------------------------------------- --------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11100 Santa Monica Blvd, Los Angeles, California 90025
- ----------------------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (310) 445-1199
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
As of June 28, 1996, the registrant had 10,834,689 common shares, $.01 par
value, outstanding.
Page 1 of 18
<PAGE> 2
JEFFERIES GROUP, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JUNE 28, 1996
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition -
June 28, 1996 (unaudited) and December 31, 1995 . . . . . . . . . . . . 3
Consolidated Statements of Earnings (unaudited) -
Three Months and Six Months Ended June 28, 1996 and June 30, 1995 . . . 4
Consolidated Statement of Changes in Stockholders' Equity (unaudited) -
Six Months Ended June 28, 1996 . . . . . . . . . . . . . . . . . . . . . 5
Consolidated Statements of Cash Flows (unaudited) -
Six Months Ended June 28, 1996 and June 30, 1995 . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
Page 2 of 18
<PAGE> 3
JEFFERIES GROUP, INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
June 28, December 31,
1996 1995
------------------ -----------------
ASSETS (unaudited)
<S> <C> <C>
Cash and cash equivalents .............................. $ 122,088 $ 68,318
Receivable from brokers and dealers .................... 774,404 1,118,154
Receivable from customers, officers and directors ...... 101,086 107,158
Securities owned ....................................... 176,128 167,210
Premises and equipment ................................. 27,035 26,206
Other assets ........................................... 95,638 49,923
------------------ -----------------
$ 1,296,379 $ 1,536,969
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Payable to brokers and dealers ......................... $ 663,043 $ 864,456
Payable to customers ................................... 143,246 214,555
Securities sold, not yet purchased ..................... 86,333 82,932
Accrued expenses and other liabilities ................. 148,707 124,062
------------------ -----------------
1,041,329 1,286,005
Long-term debt ......................................... 56,454 56,322
Minority interest ...................................... 9,780 8,381
------------------ -----------------
1,107,563 1,350,708
------------------ -----------------
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value. Authorized 1,000,000
shares; none issued ................................ -- --
Common stock, $.01 par value. Authorized 25,000,000
shares; issued 18,717,578 shares in 1996 and
18,520,706 shares in 1995 .......................... 187 93
Additional paid-in capital ........................... 61,533 58,117
Retained earnings .................................... 210,063 192,234
Less treasury stock, at cost; 7,882,889 shares in 1996
and 7,263,530 shares in 1995 ....................... (81,847) (63,075)
Less currency translation adjustments ................ (534) (522)
Less additional minimum pension liability ............ (586) (586)
------------------ -----------------
Total stockholders' equity ..................... 188,816 186,261
------------------ -----------------
$ 1,296,379 $ 1,536,969
================== =================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 3 of 18
<PAGE> 4
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ------------------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Commissions............................ $ 57,391 $ 42,526 $ 118,670 $ 82,874
Principal transactions................. 32,928 24,129 67,647 45,110
Corporate finance...................... 24,989 23,920 41,696 38,464
Interest............................... 11,909 16,149 24,968 34,179
Other.................................. 644 1,430 1,638 2,540
-------------- -------------- ------------- --------------
Total revenues...................... 127,861 108,154 254,619 203,167
Interest expense......................... 9,446 13,543 19,512 28,890
-------------- -------------- ------------- --------------
Revenues, net of interest expense........ 118,415 94,611 235,107 174,277
-------------- -------------- ------------- --------------
Non-interest expenses:
Compensation and benefits.............. 62,057 54,063 123,515 95,515
Floor brokerage and clearing fees...... 6,374 5,160 12,736 9,662
Telecommunications and data
processing services.................. 8,425 5,778 16,222 11,236
Occupancy and equipment rental......... 3,777 4,011 7,562 7,512
Travel and promotional................. 4,299 2,374 7,833 4,370
Software royalties..................... 2,022 1,265 4,245 2,646
Other.................................. 13,578 9,630 24,859 17,996
-------------- -------------- ------------- --------------
Total non-interest expenses......... 100,532 82,281 196,972 148,937
-------------- -------------- ------------- --------------
Earnings before income taxes and
minority interest.................... 17,883 12,330 38,135 25,340
Income taxes............................. 7,749 5,558 16,381 11,367
-------------- -------------- ------------- --------------
Earnings before minority interest........ 10,134 6,772 21,754 13,973
Minority interest........................ 994 638 1,982 1,244
-------------- -------------- ------------- --------------
Net earnings........................ $ 9,140 $ 6,134 $ 19,772 $ 12,729
============== ============== ============= ==============
Earnings per share of common stock:
Primary............................. $ 0.78 $ 0.52 $ 1.66 $ 1.07
============== ============== ============= ==============
Fully diluted....................... $ 0.78 $ 0.52 $ 1.66 $ 1.07
============== ============== ============= ==============
Weighted average shares of common stock:
Primary............................. 11,783 11,884 11,915 11,918
Fully diluted....................... 11,788 11,892 11,924 11,946
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 4 of 18
<PAGE> 5
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED JUNE 28, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Additional Total
Additional Currency Minimum Stock-
Common Paid-in Retained Treasury Translation Pension holders'
Stock Capital Earnings Stock Adjustment Liability Equity
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
December 31, 1995 . . . . . . . $ 93 $58,117 $192,234 $(63,075) $(522) $(586) $186,261
Exercise of stock options
(160,630 shares) . . . . . . . 2,258 59 2,317
Purchase of 627,473
shares of treasury stock . . . (18,865) (18,865)
Issuance of 27,608
shares of common stock . . . . 614 34 648
Issuance of 16,748
shares of restricted stock. . . 396 396
Increase in proportionate
share of subsidiary's
equity related to
subsidiary's purchase of
treasury stock . . . . . . . . (1,065) (1,065)
Additional vesting of
restricted stock shares . . . . 242 242
Cash dividends,
1st quarterly dividend,
$.025 per share . . . . . . . (281) (281)
2nd quarterly dividend,
$.05 per share . . . . . . . . (542) (542)
Redemption of rights,
$.01 per right . . . . . . . . (55) (55)
Translation adjustment . . . . . (12) (12)
Two-for-one stock split. . . . . 94 (94) --
Net earnings . . . . . . . . . . 19,772 19,772
--------------------------------------------------------------------------------------
Balance,
June 28, 1996 . . . . . . . . . $187 $61,533 $210,063 $(81,847) $(534) $(586) $188,816
=======================================================================================
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 5 of 18
<PAGE> 6
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 28, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . $ 19,772 $ 12,729
------------ ------------
Adjustments to reconcile net earnings to
net cash provided by operations:
Depreciation and amortization . . . . . . . . . . . . 5,718 4,229
Additional vesting of restricted stock shares . . . . 242 --
(Increase) decrease in receivables:
Brokers and dealers . . . . . . . . . . . . . . . . 343,750 172,819
Customers, officers and directors . . . . . . . . . 6,072 (43,600)
Increase in securities owned . . . . . . . . . . . . . (8,918) (15,988)
Increase in other assets . . . . . . . . . . . . . . . (46,548) (4,339)
Decrease in operating payables:
Brokers and dealers . . . . . . . . . . . . . . . . (201,413) (58,622)
Customers . . . . . . . . . . . . . . . . . . . . . (71,309) (130,224)
Increase in securities sold, not yet purchased . . . . 3,401 17,034
Increase in accrued expenses and other liabilities . . 25,041 39,280
Increase in minority interest . . . . . . . . . . . . 1,399 1,029
------------ ------------
Total adjustments . . . . . . . . . . . . . . . 57,435 (18,382)
------------ ------------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . . . 77,207 (5,653)
------------ ------------
</TABLE>
Continued on next page.
See accompanying unaudited notes to consolidated financial statements.
Page 6 of 18
<PAGE> 7
JEFFERIES GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
-----------------------------
June 28, June 30,
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from (payments on):
Bank loans . . . . . . . . . . . . . . . . . . . . . . . -- 19,134
Repurchase agreements . . . . . . . . . . . . . . . . . -- (9,196)
Repurchase of treasury stock . . . . . . . . . . . . . . (18,865) (7,190)
Dividends paid . . . . . . . . . . . . . . . . . . . . . (823) (576)
Redemption of rights . . . . . . . . . . . . . . . . . . (55) --
Exercise of stock options . . . . . . . . . . . . . . . 2,317 1,033
Issuance of common stock shares . . . . . . . . . . . . 648 2,343
Increase in proportionate share of subsidiary's equity . (1,065) (310)
------------ ------------
Net cash (used in) provided by financing activities (17,843) 5,238
------------ ------------
Cash flows from investing activities -
purchase of premises and equipment . . . . . . . . . . . . . (5,582) (5,978)
------------ ------------
Effect of foreign currency translation on cash . . . . . . . . (12) 114
------------ ------------
Net increase in cash and cash equivalents . . . 53,770 (6,279)
Cash and cash equivalents - beginning of period . . . . . . . . 68,318 71,381
------------ ------------
Cash and cash equivalents - end of period . . . . . . . . . . . $ 122,088 $ 65,102
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,761 $ 29,070
============ ============
Income taxes . . . . . . . . . . . . . . . . . . . . . . . $ 22,529 $ 7,371
============ ============
</TABLE>
See accompanying unaudited notes to consolidated financial statements.
Page 7 of 18
<PAGE> 8
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements include the accounts of
Jefferies Group, Inc. and all subsidiaries, including Jefferies & Company, Inc.
(Jefferies) and Investment Technology Group, Inc. and all of its subsidiaries
(ITGI), including ITGI's wholly-owned subsidiary, ITG Inc. (ITG). The accounts
of W & D Securities, Inc. (W & D) are also consolidated because of the nature
and extent of the Company's ownership interest in W & D. Jefferies Group, Inc.
and its subsidiaries are primarily engaged in securities brokerage and trading,
corporate finance and other financial services. The term "Company" refers,
unless the context requires otherwise, to Jefferies Group, Inc., its
subsidiaries, predecessor entities, and W & D.
All significant intercompany accounts and transactions are eliminated in
consolidation. The consolidated financial statements reflect all adjustments
which are, in the opinion of management, necessary for the fair statement of
the results for the interim period and should be read in conjunction with the
Company's annual report for the year ended December 31, 1995.
SECURITIES TRANSACTIONS
All transactions in securities, commission revenues and related expenses
are recorded on a trade-date basis.
Securities owned and securities sold, not yet purchased, are valued at
market, and unrealized gains and losses are reflected in revenues from
principal transactions.
COMMON STOCK
On March 2, 1996, the Company's Board of Directors approved a two-for-one
split of all of the outstanding shares of the Company's common stock, payable
March 29, 1996 to stockholders of record at the close of business on March 15,
1996. A total of 9,349,668 shares of common stock were issued in connection
with the split. The stated par value of each share was not changed from $0.01.
A total of $94,000 was reclassified from the Company's additional paid-in
capital account to the Company's common stock account. All share and per share
amounts have been restated to retroactively reflect the stock split.
On March 15, 1996, the Company's common stock began trading on the NYSE
under the symbol JEF. Previously, the common stock traded in the Nasdaq
National Market System under the symbol JEFG.
RECEIVABLE FROM, AND PAYABLE TO, BROKERS AND DEALERS
The components, at June 28, 1996, of receivable from and payable to brokers
and dealers are as follows (in thousands of dollars):
<TABLE>
<S> <C>
Receivable from brokers and dealers:
Securities borrowed . . . . . . . . . . . . $ 737,430
Other . . . . . . . . . . . . . . . . . . . 36,974
--------------
$ 774,404
==============
Payable to brokers and dealers:
Securities loaned . . . . . . . . . . . . . $ 637,750
Other . . . . . . . . . . . . . . . . . . . 25,293
--------------
$ 663,043
==============
</TABLE>
Page 8 of 18
<PAGE> 9
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
SECURITIES OWNED AND SECURITIES SOLD, NOT YET PURCHASED
The following is a summary of the market value of major categories of
securities owned and securities sold, not yet purchased, as of June 28, 1996
(in thousands of dollars):
<TABLE>
<CAPTION>
Securities
Sold,
Securities Not Yet
Owned Purchased
-------------- --------------
<S> <C> <C>
Corporate equity securities . . . . . . . . . . $ 84,886 $ 74,507
High-yield securities . . . . . . . . . . . . . 33,414 6,528
Corporate debt securities . . . . . . . . . . . 20,355 5,042
U.S. Government and agency obligations . . . . . 31,521 --
Municipal obligations . . . . . . . . . . . . . 5,933 --
Options . . . . . . . . . . . . . . . . . . . . 19 256
-------------- --------------
$ 176,128 $ 86,333
============== ==============
</TABLE>
In the regular course of its business, Jefferies takes securities positions
as a market-maker to facilitate customer transactions and for investment
purposes. In making markets and when trading for its own account, Jefferies
exposes its own capital to the risk of fluctuations in market value. Trading
profits (or losses) depend primarily upon the skills of the employees engaged
in market-making and position taking, the amount of capital allocated to
positions in securities and the general trend of prices in the securities
markets.
Jefferies monitors its risk by maintaining its securities positions at or
below certain pre-established levels. These levels reduce certain opportunities
to realize profits in the event that the value of such securities increases.
However, they also reduce the risk of loss in the event of a decrease in such
value and result in controlled interest costs incurred on funds provided to
maintain such positions.
The Taxable Fixed Income Division trades high grade and non-investment
grade public and private debt securities. The Division specializes in trading
and making markets in over 300 unrated or less than investment grade corporate
debt securities and accounts for these positions at market value. Risk of loss
upon default by the borrower is significantly greater with respect to unrated
or less than investment grade corporate debt securities than with other
corporate debt securities. These securities are generally unsecured and are
often subordinated to other creditors of the issuer. These issuers usually
have high levels of indebtedness and are more sensitive to adverse economic
conditions, such as recession or increasing interest rates, than are investment
grade issuers. There is a limited market for some of these securities and
market quotes are generally available from a small number of dealers.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash in banks and short term investments.
Cash equivalents are part of the cash management activities of the Company and
generally mature within 90 days. The following is a summary of cash and cash
equivalents as of June 28, 1996 (in thousands of dollars):
<TABLE>
<S> <C>
Cash in banks . . . . . . . . . . . . . . . . . $ 20,492
Short term investments . . . . . . . . . . . . . 101,596
--------------
$ 122,088
==============
</TABLE>
Page 9 of 18
<PAGE> 10
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate share
of the equity of ITGI. At June 28, 1996, Jefferies Group, Inc. owned over 80%
of ITGI's common stock.
INCOME TAXES
Deferred tax liabilities and assets are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to reverse.
NET CAPITAL REQUIREMENTS
As registered broker-dealers, Jefferies, ITG and W & D are subject to the
Securities and Exchange Commission's Uniform Net Capital Rule (Rule 15c3-1),
which requires the maintenance of minimum net capital. Jefferies, ITG and W & D
have elected to use the alternative method permitted by the Rule, which
requires that they each maintain minimum net capital, as defined, equal to the
greater of $250,000 or 2% of the aggregate debit balances arising from customer
transactions, as defined.
Net capital changes from day to day, but as of June 28, 1996, Jefferies',
ITG's and W&D's net capital was $74.5 million, $30.4 million and $808,000,
respectively, which exceeded minimum net capital requirements by $71.1 million,
$30.1 million and $558,000, respectively.
QUARTERLY DIVIDENDS
In 1988, the Company instituted a policy of paying regular quarterly
dividends. There are no restrictions on the Company's present ability to pay
dividends on common stock, other than the governing provisions of the Delaware
General Corporation Law. On March 2, 1996, the Board of Directors approved a
two-for-one stock split and the continuation after the split of the quarterly
dividend rate at $0.05 per share. This effectively doubled the quarterly
dividend rate.
Dividends per Common Share (declared and paid):
<TABLE>
<CAPTION>
1st Qtr. 2nd Qtr.
-------- --------
<S> <C> <C>
1996 . . $.025 $.05
1995 . . $.025 $.025
</TABLE>
TERMINATION OF STOCKHOLDERS RIGHTS PLAN
In March 1996, the Company redeemed all outstanding rights originally
issued pursuant to a Stockholder Rights Plan adopted by the Company in May,
1988. The rights were redeemed for a redemption price of $0.01 per right.
OFF-BALANCE SHEET RISK
The Company has contractual commitments arising in the ordinary course of
business for securities loaned or purchased under agreements to sell,
securities sold but not yet purchased, future purchases and sales of foreign
currencies, securities transactions on a when-issued basis, options contracts,
futures index contracts, commodities futures and underwriting. Each of these
financial instruments and activities contains varying degrees of off-balance
sheet risk whereby the market values of the securities underlying the financial
instruments may be in
Page 10 of 18
<PAGE> 11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
excess of, or less than, the contract amount. The settlement of these
transactions is not expected to have a material effect upon the Company's
consolidated financial statements.
In the normal course of business, the Company had letters of credit
outstanding aggregating $22.9 million at June 28, 1996, to satisfy various
collateral requirements in lieu of depositing cash or securities.
CREDIT RISK
In the normal course of business, the Company is involved in the execution,
settlement and financing of various customer and principal securities
transactions. Customer activities are transacted on a cash, margin or
delivery-versus-payment basis. Securities transactions are subject to the risk
of counterparty or customer nonperformance. However, transactions are
collateralized by the underlying security, thereby reducing the associated risk
to changes in the market value of the security through settlement date or to
the extent of margin balances.
The Company seeks to control the risk associated with these transactions by
establishing and monitoring credit limits and by monitoring collateral and
transaction levels daily. The Company may require counterparties to deposit
additional collateral or return collateral pledged. In the case of aged
securities failed to receive, the Company may, under industry regulations,
purchase the underlying securities in the market and seek reimbursement for any
losses from the counterparty.
CONCENTRATION OF CREDIT RISK
As a major securities firm, the Company's activities are executed primarily
with and on behalf of other financial institutions, including brokers and
dealers, banks and other institutional customers. Concentrations of credit
risk can be affected by changes in economic, industry or geographical factors.
The Company seeks to control its credit risk and the potential risk
concentration through a variety of reporting and control procedures, including
those described in the preceding discussion of credit risk.
Page 11 of 18
<PAGE> 12
JEFFERIES GROUP, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
ANALYSIS OF FINANCIAL CONDITION
Total assets decreased $240.6 million from $1,537.0 million at December 31,
1995 to $1,296.4 million at June 28, 1996. The decrease is mostly due to a
decrease in receivable from brokers and dealers related to securities borrowed.
The decrease in securities borrowed is related to decreases in securities
loaned (included in payable to brokers and dealers) and customer short sales
(included in payable to customers).
FIRST HALF 1996 VERSUS FIRST HALF 1995
Revenues, net of interest expense, increased $60.8 million, or 35%, in the
first half of 1996 compared to the same prior year period. The increase was
due primarily to a $35.8 million, or 43%, increase in commissions, a $22.5
million, or 50%, increase in principal transactions, and a $3.2 million, or 8%,
increase in corporate finance. Commission revenues increased, led by ITG, the
Equities Division, and the International Division. Revenues from principal
transactions increased primarily due to increased trading gains in the Equities
Division, the International Division, and the Taxable Fixed Income Division.
Corporate finance revenues benefited from increases in advisory fees. Net
interest income (interest revenues less interest expense) remained relatively
unchanged compared to the same prior year period.
Total non-interest expenses increased $48.0 million, or 32%, in the first
half of 1996 compared to the same prior year period. Compensation and benefits
increased $28.0 million, or 29%, mostly due to higher incentive based
compensation accruals. Other expense increased $6.9 million, or 38%, largely
due to higher soft dollar expenses. Telecommunications and data processing
services increased $5.0 million, or 44%, primarily due to increased trade
volume and personnel. Travel and promotional increased $3.5 million, or 79%,
mostly due to increased business travel. Floor brokerage and clearing fees
increased $3.1 million, or 32%, due to increased volume of business executed on
the various exchanges. Software royalties increased $1.6 million, or 60%, due
to higher POSIT(R) commissions. Occupancy and equipment rental remained
relatively unchanged compared to the same prior year period.
Earnings before income taxes and minority interest were up 50% to $38.1
million in the 1996 period, as compared to $25.3 million in the 1995 period.
The effective tax rate was approximately 43% in the first half of 1996 versus
approximately 45% in the first half of 1995. The 1996 effective tax rate was
lower due to a reduction in the effective state tax rates.
Minority interest (approximately 20% of the earnings of ITGI) was $2.0
million in the first half of 1996 as compared to $1.2 million in the comparable
1995 period.
Primary earnings per share were $1.66 in the first half of 1996 on
11,915,000 shares compared to $1.07 in the 1995 period on 11,918,000 shares.
Fully diluted earnings per share were $1.66 in the first half of 1996 on
11,924,000 shares compared to $1.07 in the 1995 period on 11,946,000 shares.
During the first half of 1996, the Company repurchased 627,473 shares of
its common stock versus 457,286 shares for the comparable 1995 period.
Page 12 of 18
<PAGE> 13
JEFFERIES GROUP, INC. AND SUBSIDIARIES
SECOND QUARTER 1996 VERSUS SECOND QUARTER 1995
Revenues, net of interest expense, increased $23.8 million, or 25%, in the
second quarter of 1996 compared to the same prior year period. The increase
was due primarily to a $14.9 million, or 35%, increase in commissions, an $8.8
million, or 36%, increase in principal transactions, and a $1.1 million, or 4%,
increase in corporate finance. Commission revenues increased, led by ITG, the
International Division, and the Equities Division. Revenues from principal
transactions increased primarily due to increased trading gains in the Equities
Division, the Taxable Fixed Income Division, and the International Division.
Corporate finance revenues benefited from increases in advisory fees. Net
interest income remained relatively unchanged compared to the same prior year
period.
Total non-interest expenses increased $18.3 million, or 22%, in the second
quarter of 1996 compared to the same prior year period. Compensation and
benefits increased $8.0 million, or 15%, mostly due to higher incentive based
compensation accruals. Other expense increased $3.9 million, or 41%, largely
due to higher soft dollar expenses. Telecommunications and data processing
services increased $2.6 million, or 46%, primarily due to increased trade
volume and personnel. Travel and promotional increased $1.9 million, or 81%,
mostly due to increased business travel. Floor brokerage and clearing fees
increased $1.2 million, or 24%, due to increased volume of business executed on
the various exchanges. Software royalties increased $757,000, or 60%, due to
higher POSIT(R) commissions. Occupancy and equipment rental remained
relatively unchanged compared to the same prior year period.
Earnings before income taxes and minority interest were up 45% to $17.9
million in the 1996 period, as compared to $12.3 million in the 1995 period.
The effective tax rate was approximately 43% in the second quarter of 1996
versus approximately 45% in the second quarter of 1995. The 1996 effective tax
rate was lower due to a reduction in the effective state tax rates.
Minority interest (approximately 20% of the earnings of ITGI) was $1.0
million in the second quarter of 1996 as compared to $638,000 in the comparable
1995 period.
Primary earnings per share were $0.78 in the second quarter of 1996 on
11,783,000 shares compared to $0.52 in the 1995 period on 11,884,000 shares.
Fully diluted earnings per share were $0.78 in the second quarter of 1996 on
11,788,000 shares compared to $0.52 in the 1995 period on 11,892,000 shares.
During the second quarter of 1996, the Company repurchased 383,715 shares
of its common stock versus 111,818 shares for the comparable 1995 period.
Page 13 of 18
<PAGE> 14
JEFFERIES GROUP, INC. AND SUBSIDIARIES
The Company's principal activities, securities brokerage and the trading of
and market-making in securities, are highly competitive and extremely volatile.
The earnings of the Company are subject to wide fluctuations since many factors
over which the Company has little or no control, particularly the overall
volume of trading and the volatility and general level of market prices, may
significantly affect its operations. The following provides a breakdown of
total revenues by source for the six months and three months ended June 28,
1996 and June 30, 1995.
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------------------------
June 28, June 30,
1996 1995
-------------------------- --------------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commissions and principal transactions:
Equities . . . . . . . . . . . . . . . . $ 87,402 34% $ 66,677 33%
Investment Technology Group . . . . . . 54,141 21 32,625 16
International . . . . . . . . . . . . . 23,733 9 17,547 9
Taxable Fixed Income . . . . . . . . . . 8,732 4 4,738 2
Convertible . . . . . . . . . . . . . . 3,867 2 3,444 2
Other proprietary trading . . . . . . . 8,442 3 2,953 1
Corporate finance . . . . . . . . . . . . . . 41,696 16 38,464 19
Interest . . . . . . . . . . . . . . . . . . 24,968 10 34,179 17
Other . . . . . . . . . . . . . . . . . . . 1,638 1 2,540 1
-------------------------- --------------------------
Total revenues . . . . . . . . . . . . $ 254,619 100% $ 203,167 100%
========================== ==========================
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------------------------------
June 28, June 30,
1996 1995
-------------------------- --------------------------
% of % of
Total Total
Amount Revenues Amount Revenues
------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commissions and principal transactions:
Equities . . . . . . . . . . . . . . . . $ 42,588 33% $ 34,967 32%
Investment Technology Group . . . . . . 26,913 21 16,510 15
International . . . . . . . . . . . . . 10,400 8 9,063 9
Taxable Fixed Income . . . . . . . . . . 3,968 3 3,286 3
Convertible . . . . . . . . . . . . . . 1,878 1 1,721 2
Other proprietary trading . . . . . . . 4,572 4 1,108 1
Corporate finance . . . . . . . . . . . . . . 24,989 20 23,920 22
Interest . . . . . . . . . . . . . . . . . . 11,909 9 16,149 15
Other . . . . . . . . . . . . . . . . . . . 644 1 1,430 1
-------------------------- --------------------------
Total revenues . . . . . . . . . . . . $ 127,861 100% $ 108,154 100%
========================== ==========================
</TABLE>
Page 14 of 18
<PAGE> 15
JEFFERIES GROUP, INC. AND SUBSIDIARIES
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) Date of Meeting - - May 2, 1996
Type of Meeting - - Annual Meeting of Stockholders
(b) At the meeting, the following directors were elected by the
stockholders to hold office until the next annual meeting of
stockholders or until their successors have been duly elected and
qualified:
Frank E. Baxter
Richard G. Dooley
Tracy G. Herrick
Michael L. Klowden
Frank J. Macchiarola
Barry M. Taylor
Mark A. Wolfson
(c)(1) At the meeting, with respect to the matters under consideration,
the following votes were cast in the following manner:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C> <C>
Election of seven Directors 4,206,408 49,337
Adoption of the Non-Employee Directors'
Deferred Compensation Plan 4,078,238 148,541 28,966
</TABLE>
The outstanding voting securities of the Company consisted of
5,598,524 shares of Common Stock on March 22, 1996 which was the
record date for determining shareholders entitled to vote at the
Annual Meeting of Shareholders. Such number of outstanding shares
of Common Stock at the record date for the meeting does not include
shares issuable in the two-for- one stock split (the "Stock Split")
of all the outstanding shares declared by the Board of Directors on
March 22, 1996. Except for the number of shares outstanding at the
record date for the meeting and therefore the number of voted at
the meeting, all other share information in this Form 10-Q has been
restated to retroactively reflect the effect of the Stock Split.
(d) Not applicable
Page 15 of 18
<PAGE> 16
JEFFERIES GROUP, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11. Computation of Earnings Per Share (page 17 attached)
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended
June 28, 1996.
Page 16 of 18
<PAGE> 17
EXHIBIT 11
JEFFERIES GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
June 28, June 30, June 28, June 30,
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Earnings $ 9,140 $ 6,134 $ 19,772 $ 12,729
========= ========= ========= =========
Shares of common stock and common stock
equivalents:
Average number of common shares .................... 10,900 10,974 11,068 11,022
Average common stock equivalent shares
related to employee stock based plans ............ 883 910 847 896
--------- --------- --------- ---------
Average shares used in primary computation ......... 11,783 11,884 11,915 11,918
Adjust average common stock equivalents to
period-end market price, if higher than
average price .................................... 5 8 9 28
--------- --------- --------- ---------
Average shares used in fully diluted computation ... 11,788 11,892 11,924 11,946
========= ========= ========= =========
Earnings per share:
Primary ............................................ $ 0.78 $ 0.52 $ 1.66 $ 1.07
========= ========= ========= =========
Fully diluted ...................................... $ 0.78 $ 0.52 $ 1.66 $ 1.07
========= ========= ========= =========
</TABLE>
Page 17 of 18
<PAGE> 18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JEFFERIES GROUP, INC.
------------------------------------
(Registrant)
Date: August 9, 1996 By: /s/ MAXINE SYRJAMAKI
---------------------- -----------------------------------
Maxine Syrjamaki
Controller
Page 18 of 18
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AND THE CONSOLIDATED STATEMENTS
OF EARNINGS AS OF JUNE 28, 1996 AND FOR THE SIX MONTHS THEN ENDED AND THE NOTES
THERETO AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS FILED IN THE 1996 JEFFERIES GROUP, INC. SECOND QUARTER 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-28-1996
<CASH> 122,088
<RECEIVABLES> 138,060
<SECURITIES-RESALE> 0
<SECURITIES-BORROWED> 737,430
<INSTRUMENTS-OWNED> 176,128
<PP&E> 27,035
<TOTAL-ASSETS> 1,296,379
<SHORT-TERM> 0
<PAYABLES> 168,539
<REPOS-SOLD> 0
<SECURITIES-LOANED> 637,750
<INSTRUMENTS-SOLD> 86,333
<LONG-TERM> 56,454
0
0
<COMMON> 187
<OTHER-SE> 188,629
<TOTAL-LIABILITY-AND-EQUITY> 1,296,379
<TRADING-REVENUE> 67,647
<INTEREST-DIVIDENDS> 24,968
<COMMISSIONS> 118,670
<INVESTMENT-BANKING-REVENUES> 41,696
<FEE-REVENUE> 0
<INTEREST-EXPENSE> 19,512
<COMPENSATION> 123,515
<INCOME-PRETAX> 38,135
<INCOME-PRE-EXTRAORDINARY> 38,135
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,772
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
</TABLE>
